“Over the past few quarters we have seen a slowdown in some markets, especially in Southern Europe, where our extrusion business is exposed to significant risks. The global primary aluminum industry is also facing strong headwinds due to the combination of low metal prices and high raw material costs, reflecting the market imbalance, "said Hydro Svein CEO Richard Brandtzæg.
"The measures we take in our value chain serve to improve our competitive position in an industry that faces short-term challenges," says Brandtzæg.
The current financial situation and poor prospects will result in Hydro's Kurri Kurri Australian aluminum smelter being impaired by approximately NOK 1 billion. Hydro announced on January 18, 2012 that one of Kurri Kurri's three production lines would be shut down due to the difficult situation and to reduce further losses. The write-off confirms Kurri Kurri's challenging financial situation, and this situation is closely monitored.
The remaining book value of fixed assets in Kurri Kurri is NOK 1.2 billion.
Kurri Kurri is impacted by the strong Australian dollar and the challenges facing the entire industry, namely low metal prices and high raw material costs. The uncertainty regarding future electricity supply and electricity costs also questions the long-term sustainability of the hut.
The European extrusion industry has been significantly impacted by the eurozone debt crisis, while some markets outside Europe are more balanced. Lower demand, especially in Southern Europe, combined with customer destocking and margin pressure have a significant impact on Hydro's extrusion business. There are currently no signs of an early recovery in these markets.
Hydro will write off Building Systems' assets in Spain, Portugal and Italy in the fourth quarter of approximately NOK 230 million, which is almost half of the book value.
The ongoing measures by Building Systems, including the closure of plants, production lines and warehouses, aim to reduce costs by EUR 40 million (around NOK 300 million) by the end of 2012. As a result of these measures, approximately NOK 80 million in restructuring costs will be reported in the fourth quarter of 2011.
Further adjustments to the portfolio
As announced on September 16, 2011, Hydro sold its 35% stake in Alpart's alumina refinery in Jamaica to UC Rusal. The transaction closed in the fourth quarter and resulted in an after-tax profit of NOK 465 million.
The strategic importance of Hydro's investments in the solar business has been reduced after Hydro became a fully integrated aluminum company in 2011 with the acquisition of Vale's aluminum business in Brazil. Difficult markets with overcapacity and the resulting lower prices have reduced the value of fixed assets in the solar sector. Hydro will amortize the value of these investments by NOK 115 million in the fourth quarter of 2011, resulting in an insignificant residual book value.
Tax and accounting effects
None of the above depreciation leads to corresponding tax relief in accounting. In addition, the fourth quarter result will include a write-down of approximately NOK 300 million on deferred tax assets in Australia, Italy and Spain.
All the effects mentioned are not taken into account in the adjusted result.
Hydro will release fourth quarter earnings on February 16 at 7:00 a.m. (CET).